News

AccountLease™ Articles, News

COVID-19 Triggers New FASB Guidance on Lease Accounting

Anticipated business disruptions due to the COVID-19 pandemic prompted the FASB on April 8, 2020 to formally propose the following delays in the effective dates for implementing Topic 842, Leases:

  • For private companies and private not-for-profit (NFP) entities to fiscal years starting after December 15, 2021.
  • For NFP entities that have issued or are conduit bond obligors for securities that are traded listed or quoted on an exchange or an over-the-counter market and which have not yet issued financial statements to fiscal years starting after December 15, 2019.

Critical Lease Accounting Topics Affected by COVID-19:

  • Short or long term lease concessions:
    • Do you have enforceable rights in your contracts for lease concessions?
    • Will there be changes that result in lease modifications and lease re-measurements?
    • If there are concessions, how will that affect the materiality treatment on your financial statements?
  • With interest rates dropping, a lessee’s Incremental Borrowing Rate (IBR) may be impacted when calculating right-of-use (ROU) assets and lease liabilities:
    • How will this affect balance sheets when entering into new leases or re-measuring existing leases?
  • With commercial real estate values and discount rates dropping, how will this affect the Fair Value and lease classification as either finance or operating leases are reassessed?
  • Other considerations stemming from the COVID-19 pandemic and the economic downturn will be such things as the likelihood of exercising renewal options, terminations or purchase options.

If You Have Questions or Need Help, CONTACT US TODAY!

We are here to help you navigate through all of these economic changes and the complex decisions you need to make in order to comply with Topic 842.… Read More

AccountLease™ Articles, News

Pandemic alters lease accounting landscape

By Stephen G. Austin, CPA; Joel Colbourn, CPA; Ane Ohm, CPA; and Don Mitchell  | Originally posted on: www.journalofaccountancy.com

In addition to causing enormous disruption to health, safety, and the economy across the globe, the coronavirus pandemic has significantly altered the landscape for CPAs related to the lease accounting standard.

The changes include a potential effective date delay of FASB’s new lease accounting standard for certain entities, including private companies; a monumental increase in the number of lease modifications requested by lessees and granted by lessors; and the need for disclosures related to a company’s lease accounting decisions in the new environment.

Here’s a closer look at lease accounting amid the coronavirus pandemic.

FASB’s Delay Proposal

In recognition of the business disruptions caused by the new standard, FASB has voted to issue a proposal that would delay by one year the effective dates of its lease accounting standard for certain entities. If approved, the delay to FASB ASC Topic 842, Leases, would apply to private companies, not-for-profits, and not-for-profit entities that FASB calls public not-for-profits, which have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over-the-counter market and that have not yet issued financial statements.

The soon-to-be-proposed delay for private companies and private not-for-profits would make the standard effective for private companies and private not-for-profits for fiscal years starting after Dec. 15, 2021. The effective date for public not-for-profits would be fiscal years starting after Dec. 15, 2019.

Lease Concessions

Shelter-in-place, stay-at-home, social distancing, self-quarantine, and other directives have caused significant disruptions to business operations, with many businesses and industries being effectively shut down.… Read More

AccountLease™ Articles, News

Lease accounting standard requires new auditor judgments

By Stephen G. Austin, CPA; Joel Colbourn; Phillip Doolittle; and Doug Renner | Originally posted on: www.journalofaccountancy.com

Public companies’ required implementation of FASB’s new lease accounting standard in 2019 means that financial statement auditors need to be prepared to make new judgments.

Although the private company implementation date for the standard hasn’t yet arrived, auditors of both public companies and private companies that prepare financial statements in accordance with GAAP will eventually need to determine whether adequate work has been performed to ensure a reasonable opening entry upon implementation. As part of understanding the entity’s processes and controls, auditors also will have to assess whether their clients or companies (in the case of internal auditors) have adequate go-forward processes in place to ensure that upon execution of a contract, a determination is made as to whether that contract is, or contains, a lease.

The new standard (FASB ASC Topic 842, Leases) calls for recognition of lease liabilities and right-of-use assets for lease arrangements previously identified as operating leases and capital leases (which are now called finance leases). This means that on the first day of a new fiscal year, the entity will have to prepare accounting entries to record this recognition. The auditor needs to understand how the client determined the entry balances recorded through this opening entry.

Most companies will adopt the package of three practical expedients by which the leases identified and recorded in the prior year will carry forward as the foundation for the opening entry. This assumes the previous accounting was handled correctly — perhaps a precarious assumption.… Read More

Cresa, LeaseCrunch, News

Private Companies Have Another Year To Deal With New Lease Accounting Standards, And They’ll Probably Need It

By Dees Stribling  | Originally posted on: Bisnow.com

The Financial Accounting Standards Board has given U.S. private companies and nonprofits another year to start treating their operating leases as liabilities on their balance sheets. Now they have to do so beginning in their first fiscal year after Dec. 15, 2020, rather than after Dec. 15, 2019, as originally planned.

The change would add a significant number of liabilities to the books of companies with a lot of leased space, so companies with cash and an aversion to debt may opt to buy buildings, if possible. Other companies might turn to coworking or other short-term space. But the jury is out on whether that will happen.

In any case, the extension is good, accountants and leasing brokers said, but no reason to procrastinate on making the switch.

“In our three-plus years of working on this, it’s clear that most companies have drastically underrated the complexity of this process and the time and effort to complete the task,” said Cresa Managing Principal Don Mitchell, who is in the company’s San Diego office. “It can be daunting.”

“Applying the standards has posed a more difficult challenge than originally thought,” said CohnReznick Director Matthew Derba, who is in the company’s New York office. “I believe the deferral by FASB is a direct reflection of that.”

Read more at: https://www.bisnow.com/index.php/national/news/office/new-deadline-for-lease-accounting-is-2021-but-its-still-a-deadline-101586?utm_source=CopyShare&utm_medium=Browser

LeaseCrunch, News

LeaseCrunch™ Update

The LeaseCrunch™ team is pleased to announce the following updates:

  • Cost Center Enhancement. You can now assign multiple cost centers to an expense general ledger account.
    • Where is it? When adding or editing a lease, cost centers are now on the GL Accounts tab.
    • How does it work? I’m glad you asked. Visit our resources page to view our 1-minute explanation video.
    • What about my existing cost centers? If you already assigned a cost center for a lease, that cost center is now on the GL Accounts page for that lease. You can now edit a lease and allocate an expense item across up to nine additional cost centers.
  • Audit Trail. For any changes going forward, you will be able to see who edited what data fields and when for each lease.
    • Where is it? When viewing or editing a lease, click on Audit Trail in the upper right-hand corner of the screen.
    • How does it work? Once again, I’m glad you asked. Visit our resources page to view our 1-minute explanation video.
    • Anything else? You can also export the full audit trail for a lease to an Excel spreadsheet for further analysis.
  • Bulk Import Template Updated. If you are adding new transition leases to LeaseCrunch™, please be certain to use the latest template now available on the first step of the Bulk Import process.
  • Footnote for ASC 842. There are several items in the GAAP footnote disclosure that LeaseCrunch™ does not calculate: short-term lease expense, sublease income, and sale-leaseback gains/losses.
Read More
News

How a New Lease-Accounting Standard Will Impact Transportation and Logistics

By Adam Schrom, SCB Contributor  | Originally posted on: SupplyChainBrain.com

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The Financial Accounting Standards Board’s new lease-accounting standard, ASC 842, went into effect for public transportation and logistics companies last year. FASB recently proposed extending the deadline for private companies for one year to annual periods beginning after December 15, 2020, which, as of August 2019, was still undecided. The new rules replace ASC 840, which has been used for more than 40 years, and changes the way businesses must account for finance (capital) and operating leases, moving almost all leases to the company balance sheet.

Previously, operating leases could be reported as a footnote in corporate financial statements, not affecting the balance sheet. These new reporting requirements are a fundamental change in the way businesses must now account for their lease obligations, and can have a significant impact on lease-versus-buy decisions as well as company financial statements. Even for public companies that made it through the first year of compliance, many are still struggling with developing repeatable processes to ensure continued compliance.

Transportation and logistics companies face significant challenges to ASC 842 adoption and compliance, due to the extensive and diverse types of lease assets that are central to the business. Everything from vehicle and equipment leases to leased storage units, airplanes, and ships will be affected by the change. According to the International Accounting Standards Board, companies are expected to bring upwards of $3 trillion in operating leases onto their financial statements due to the new accounting rules.… Read More

AccountLease™ Articles, News

Hidden in plain sight: Accounting for embedded leases

By Stephen G. Austin, CPA; Joel C. Colbourn; and Kristen Gibbons | Originally posted on: www.journalofaccountancy.com

FASB’s new lease accounting standard is having a significant effect on a broad range of balance sheets for all types of entities, with some companies reporting financial obligations of billions of dollars.

In addition to requiring large sums to be placed on balance sheets, the new standard is causing difficulties for preparers as they struggle to locate and extract data from their many lease contracts so they can comply with the new rules. But this is not the only difficulty preparers are facing.

Under the new standard as codified in FASB ASC Topic 842, Leases, contracts that are not clearly identified or labeled as leases may be “arrangements that contain a lease.” For example, a lease may exist when equipment is provided by a vendor in connection with the purchase of consumables or the delivery of a service. Discovery and deeper evaluation of these arrangements where leases may be hidden in plain sight has been a significant challenge for many preparers.

FASB’s previous lease accounting standard, Topic 840, also required evaluation of these arrangements, although some may say that this analysis was not considered as thoroughly as it is now that the lease liability belongs on the balance sheet under Topic 842. Often under Topic 840, the many “service contracts” that met the “arrangements that contain a lease” criteria were classified as some type of operating expense other than rent expense.

The correction of this accounting is probably a classification issue in the income and expense statement.… Read More

News

Lease Accounting Change Makes EBITDA an Even Muddier Metric

By Amanda Iacone, Reporter at Bloomberg Tax | Originally posted on: news.bloombergtax.com

  • New lease accounting rules short-change comparability between international and U.S. companies
  • Data vendors, companies adjusting the universal metric for lease accounting

The corporate earnings measurement known as EBITDA stormed into popular use during the leverage buyout boom of the 1980s, as investors looked for a measure better than net income to figure out how much cash a company generated, and ultimately whether it could handle its debt.

In the decades since, it evolved into a tool for evaluating everything from credit strength to equity multiples even as it was derided as “earnings before expenses” and came under scrutiny at the Securities and Exchange Commission.

Now, sweeping changes to lease accounting rules instituted this year have delivered a blow to the relevance of earnings before taxes, depreciation and amortization as the metric has been used traditionally. Differences in methods used to calculate it already limited its usefulness, said Robert Schiffman, a Bloomberg Intelligence credit research analyst, “and these accounting issues just make it a little bit more imperfect.”

The new rules for lease accounting required companies to report all long-term leases on their balance sheets for the first time.

The trillions of dollars’ worth of operating leases for airplanes, retail space, and office equipment were long estimated by investors and ratings agencies. But the accounting change triggered a few surprises for investors because, while instituted as a step toward balance sheet honesty, it also impacted earnings for such companies as Ryder System Inc.,… Read More

News

FASB proposal to delay accounting standards could cause headaches for investors

By Michael Cohn of AccountingToday.com | Originally posted on: www.accountingtoday.com

Moody’s Investors Service is objecting to a proposal from the Financial Accounting Standards Board to delay the effective dates of its leases, hedging and credit loss standards for private companies and small public companies, saying it would reduce the comparability of financial statements of public and private companies for investor and delay IPOs and mergers.

At a meeting last month, FASB voted to defer the effective dates of four standards for private companies, nonprofits and smaller reporting companies: leases, hedging, credit losses (also known as CECL for the current expected credit loss model it uses) and long-duration insurance contracts such as life insurance (see FASB to propose delays in major accounting standards). FASB subsequently unveiled the formal proposals as proposed accounting standards updates this month (see FASB issues proposal to delay new accounting standards and FASB proposes to delay insurance accounting standard). FASB typically gives private companies an extra year to implement major new accounting standards after the effective date for public companies.

The proposals would give private companies and nonprofits at least two years beyond the effective date for larger public companies, as well as extend the effective date for smaller reporting companies (those with a public float of less than $250 million; or annual revenue of less than $100 million and either no public float or a public float of less than $700 million). FASB is proposing a new philosophy of staggering the effective dates for major standards between larger public companies and all other entities, including private companies, smaller public companies, not-for-profits and employee benefit plans.… Read More

News

GASB offers implementation guide on lease accounting

By Michael Cohn, Editor-in-chief of AccountingToday.com | Originally posted on: www.accountingtoday.com

The Governmental Accounting Standards Board has released questions and answers about the recent standard on accounting and financial reporting for leases by state and local governments.

Implementation Guide No. 2019-3, Leases, addresses a variety of questions about how to apply the provisions of GASB Statement No. 87, Leases, including scope and applicability; determining the term of a lease; determining if a lease qualifies for the short-term lease exception; and recognition, measurement and disclosure by lessees.

Other topics include recognition, measurement and disclosure by lessors; accounting for contracts with multiple components and contract combinations; accounting for modifications and terminations of leases, along with sale-leasebacks, lease-leasebacks and intra-entity leases.

The guidance is applicable to all state and local governments that follow U.S. GAAP when preparing their financial statements.

The guide is available for download at no charge. Printed copies will be available through the GASB Store in the weeks ahead.